On January 27, 2021, New York State Senators Jeffrey Dinowitz and Michael Benedetto introduced Assembly Bill A3525 (“Bill”), which establishes the Uniform Debt-Management Services Act (“Act”). AB A3525 was referred to the Consumer Affairs and Protection Committee (“Committee”), where it will be evaluated by its members. The Committee will then decide whether or not to “report” it (send it) to the NY Senate floor for a final decision by the full membership. Senators Dinowitz and Benedetto have attempted to introduce similar legislation to establish such an Act in 2013, 2015, 2017, and 2019; however, their proposed legislation has never passed the Committee stage. This proposed Bill has not yet been placed on the Committee’s agenda. We will continue to monitor A3525 and update you on its trajectory through the New York Legislature.
Who It Affects?
As drafted, the Bill would require that all debt settlement companies (“DSC”) operating within the state of New York obtain a license to do business. The Bill defines DSCs broadly to include companies that offer advice and assistance to consumers regarding debt settlement services and act as intermediaries or solicit on behalf of DSCs. Based on this definition it appears that this Bill will affect both backend and frontend DSCs. A DSC is considered to be doing business in New York if any of its employees or agents are located in the state or if the DSC advertises, solicits, offers, or contracts to provide debt settlement services to debtors that reside in the state.
As a condition for the issuance and retention of a license, AB 3525 will require DSCs to file a surety bond with the state in the amount of $250,000.00. However, it is stated that in place of a surety bond, a DSC may pledge to maintain a “pledge account” with a bank in the state of New York in the same amount for the same purpose. The State will be able to increase or decrease the amount required for the surety bond or pledge account at its discretion.
Fee Caps and Refunds
Regarding fees, AB 3525 states that DSCs will be allowed to charge only enrollment and settlement fees. Enrollment fees are not to exceed $50.00. Settlement fees are not to exceed 20% of the amount saved by the debtor and may not be collected until the debt has been fully settled with the creditor. There is also a provision included in the Bill regarding the debtor’s right to a refund. If the debtor cancels their agreement with a DSC within ninety days, a full refund must be provided within five business days of the DSC receiving notice of the cancellation. Any already earned settlement fees will be exempted from this refund. If the debtor cancels after ninety days have passed, the DSC may also retain any enrollment fees.
Additional Key Limitations
The Bill sets out several specific guidelines for how DSCs are to conduct their business. All advertising and marketing communications concerning debt settlement services must provide clear disclosures as outlined in the Bill. Before entering into an agreement with a debtor, DSCs must provide the debtor with additional disclosures, which the legislation also provides.
Moreover, DSCs will also have to prepare and provide the debtor with a written statement that includes a financial analysis of the debtor’s income, expenses, and debt, a description of services, an estimate of how long the program will take, etc. DSCs with power of attorney will not be allowed to settle debts for more than 50% of the principal amount without the debtor’s consent.
Additionally, the Bill will require DSCs to maintain business records for a minimum of six years and to annually file a report with the State of its audited financial statements and any other information that the State deems necessary.
According to the proposed legislation, any violation of this Act will result in a Class A misdemeanor. The State may also impose additional monetary penalties where applicable.
As it stands, AB 3525 would greatly impact the debt settlement services industry and would require not only backends to be licensed, but frontends as well. Both backends and frontends would be required to follow the terms of this legislation. However, prior versions of this Bill have been introduced and have never been signed into law. We will continue to monitor A3525 and update you on its trajectory through the New York Legislature.
If you would like to read the entire text of the proposed legislation, please click on the following link: https://www.nysenate.gov/legislation/bills/2021/A3525.